Earlier this month, the Franklin County Court of Appeals affirmed a preliminary injunction and summary judgment against a former department head for breaching his non-compete agreement when he formed his own competing business and performed work for his former employer’s customers. Capital City Mechanical, Inc. v. Bartoe, 2024-Ohio-4550. While the court agreed that the employee could perform work for the employer’s customers if he was hired by an unrelated company which also provided services to the same customer, he was barred from performing services for his employer’s customers for two years even without a geographic limitation. He also could not prevail on a tortious interference claim when the employer was permitted to inform entities that he had a non-compete agreement and when he could not show a firm expectation of being hired for any work.
According to the Court’s opinion, the defendant employee was
hired shortly after the employer started business in 2001, became a key employee
and was responsible for submitting bids and procuring supplies, etc. Customers
would contact him through the employer-provided cell phone he had been issued. He had no prior experience in this trade, but
“had access to confidential information relating to company operations,
strategy, logistics, trade secrets, customer lists, pricing, and margin
information.” In 2019, in connection with an incentive compensation agreement,
he was given an agreement containing confidentiality, non-solicitation and non-compete
clauses. Similar agreements were signed several times thereafter. In 2020, the employer was contacted about
submitting a bid for construction work and to inform the general contractor
that it would be performing the backflow work. A few weeks, later, he formed his own
competing business and he resigned from the employer a few months later. He submitted a bid and then was hired by the
general contractor the following month to perform work for the same customer of
his former employer. The employer
learned a few months later and filed suit.
A TRO was quickly entered and a preliminary injunction was issued about
eight months later. Two years after the
lawsuit had been filed the trial court granted the employer summary judgment. The employer was awarded over $15K in damages.
This appeal followed, but by then, the
agreement had expired.
The Court agreed that the employee had breached the
non-compete agreement by using his knowledge gained from the employer to submit
competing bids and performing work for its customers during the two-year
restricted period. The parties had
disputed whether the end-user of the employer’s services could be considered as
its customer when its invoices were submitted to and paid by the general
contractor. The courts agreed that end-users
could be customers, but that the employee would not have breached the agreement
if he had been hired by a different general contractor who had a pre-existing
relationship with the same customer. In
other words, he “may work for an unrelated general contractor at an end-user
without breaching the non-compete provisions, even if the end-user is a CCM
customer. The objective of the non-compete agreement was to prevent unfair
competition, but not all competition.”
There was evidence that he had turned down jobs offered directly
by his former employer’s customers/end-users, but then would accept for the
same end-user if they came through an unrelated general contractor that had never
been a customer of his former employer. No damages were awarded for work which he performed
after being hired by a non-customer even if it was for an end-user that was also
a customer of his former employer.
The court found the terms of the non-compete to be
reasonable with a two-year restricted period and no geographic limitations. “The
agreement was able to safeguard [the employer’s] protectable interest and allow
[the employee] to earn a living in the plumbing trade.”
The Court also rejected the employee’s tortious interference
claim because he could not prove that he had a pre-existing relationship with
any non-customer or definite expectation of revenue:
The trial court determined that [the
employee] did not identify any business relationships that were interfered with
and was not able to identify any revenue that he lost as a result of
interference. [One company] was [his former employer’s] customer, and [he] was
already precluded from doing business with them pursuant to the non-compete
agreement. [A second company] never solicited any bids from [him], and he had
no firm expectation of receiving work. Without any evidence that [his former
employer] cost [him] business from [the second company], recovery on a tortious
interference claim is precluded.
[The employer] was allowed to inform
people in the trade of the non-compete clause and that a preliminary injunction
against [him] was in place. Summary judgment was proper on the tortious
interference claim [in favor of the employer].
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
